Jobs report better than expected

The stronger-than-expected jobs report released on Thursday will likely calm fears about the strength of the economic recovery and bolster Democrats’ arguments that hiring is on the upswing in advance of the midterm elections.

The economy added 288,000 jobs in June while the unemployment rate dropped to 6.1 percent, the Labor Department reported Thursday. Analysts had expected job growth of about 215,000, according to a Bloomberg survey of economists.

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The unemployment rate is now at its lowest level since September 2008, when the financial crisis hit full stride following the failure of Lehman Brothers.

“After having a few months of better numbers, we got a much better number,” Prudential Fixed Income Chief Investment Strategist Robert Tipp said in an interview. “No doubt a good sign for the economy. That’s the bottom line.”

The jobs report comes after the Commerce Department announced last week that the economy contracted more sharply in the first quarter than previously reported, setting off a new round of questions about the state of the economic recovery.

The 2.9 percent decline in gross domestic product had economists worried there are broader problems holding back growth than the brutal winter weather that has been blamed for postponing construction projects and big purchases by consumers.

But Thursday’s report contained several signs that jobs growth has been improving this year, with the number for May being revised from 217,000 to 224,000 and the number for April being revised from 282,000 to 304,000.

“If we’re looking at jobs numbers for the year over 200,000, probably significantly over 200,000, that suggests that businesses are confident, that the recovery is in place and they’re confident about their economic outlook,” Standard & Poor’s U.S. Chief Economist Beth Ann Bovino said in an interview. “They wouldn’t be hiring those people if they thought they weren’t going to sell their products.”

The state of the economy is a major theme for this year’s midterm elections, with Republicans hammering President Barack Obama and Democrats for the sluggish recovery. But the strength of Thursday’s report, as well as the recent hiring trends, will give Democrats ammunition to fight back arguing the economy is healing despite House Republicans efforts to block the president’s proposals.

“We’ve done better than the vast majority of other countries over the last five years, but that drag has still meant a lot of hardship for a lot of folks,” President Barack Obama said Wednesday in remarks at 1776, a a hub for start-up companies in Washington. “And so it’s really important for us to understand that we could be making even stronger process, we could be growing even more jobs, we could be creating even more business opportunities for smart, talented folks like these if those of us here in Washington were focused on them, focused on you, the American people, rather than focused on politics.”

Republicans used the report to once again call on the White House and Senate Democrats to embrace bills passed by the House.

“As we head into the Independence Day weekend, it’s disappointing to realize that millions of our fellow Americans think the American Dream is slipping away because they can’t find good jobs in the Obama economy,” Republican National Committee Chairman Reince Priebus said.

Financial markets mostly took the the new numbers in stride with the Dow Jones Industrial Average up 62 points, or about 0.4 percent, in early morning trading.

The amount of people in the labor force — the participation rate — was unchanged from the previous month. While that number remains near historic lows it also showed that the unemployment rate is dropping because more people are getting hired not because fewer people are looking for work.

In a sign of a brightening employment picture, those who have been looking for work for an extended amount of time, at least 27 weeks, have started to find jobs. The amount of long-term unemployed has declined by 1.2 million over the past year, according to the Labor Department.

The report also showed an increase in the amount of workers who have taken part-time work in order to make ends meet. There are now more than 7.5 million so-called involuntary part-time workers but that figure is down over the past year.

Mizuho Securities USA Chief Economist Steven Ricchiuto said closer attention is being paid not just to how many jobs are being created each month but where salaries are going as well.

“We’re starting to see some employment, but we’re not seeing the income that’s generated,” he said.

Average wages for those who have found work did show an uptick in June and have now increased by 2 percent over the past year.

While businesses may be hiring more workers, there are concerns income hasn’t kept up with the rising costs of everyday items like groceries and rent. Nomura Chief Economist Lewis Alexander said prices have grown at twice the rate as wages in the past three months and that smaller businesses in particular still aren’t able to fill higher-paying jobs as much as they were in the past.

“That combination is not really sustainable,” Alexander said.

With the midterm elections approaching there is little evidence Congress will enact any legislation this year to boost growth or hiring.

That continues to leave the Federal Reserve as the biggest government player in the economy.

Fed officials have given little indication they will change their current policy course as their outlook for the economy hasn’t darkened and the central bank is expected to continue reducing its key “quantitative easing” stimulus program in the coming months.

“We expect the Fed to halt its quantitative easing this October and we anticipate that the first rate hike will come in March next year,” Paul Ashworth, chief U.S. economist at Capital Economics said in a note to clients.